How small businesses can leverage assets to access capital.
I earn my keep by working in the Financial Industry. Specifically, in the Capital Markets Department as a Commercial relationship manager/lender. It is hard work but I love it. I learn a lot about business in different industries; in one day I could have a meeting with a farmer who wants to explore hydroponic farming, with a Doctor who runs a Lab, and a Solar energy business who needs capital to purchase inventory. It is my job to understand the ins and outs of how these businesses function, assess their financial needs, conduct due diligence on their financials and all other documentation before extending capital needed to grow and expand operations. If you have not figured it out by now-I love it. One of my favourite parts of my job is listening to the passion the owners have in their business, their dedication and the enthusiasm for the upcoming projects they are going to pursue with the capital injection.
During the Pandemic industries were affected differently. What was evident, many industries had to quickly pivot to remain relevant to continue generating cash flows. Companies which were not able to pivot as quickly required working capital to stay afloat and they needed it fast. This urgency to maintain cashflow and stay afloat separated the wolf from the sheep.
Over the last year, I was referred to and received calls from so many small business owners (with 5 and less employees) who were struggling to keep doors open and urgently needed capital, to purchase inventory as demands of consumers began changing, upgrade equipment to change packaging keeping in line with new COVID-19 protocols or to expand operations for export etc. I made a few distinctions between Micro/Small Business and Medium Business operations. Particularly, small business owners who struggled tremendously with leveraging their assets to raise capital. Their interest rates were almost always in the double digits, the owners inadvertently used personal credit cards for business needs and the businesses had no investments or even savings.
The later is critical. Similar to our personal finances, we put money aside for a rainy day and we invest to earn passive income; following similar practices for your business should be a top priority. Companies who did that were able to quickly leverage their investment portfolios to generate cash to do the necessary changes they needed for operations to continue. Businesses who did not, were still trying to figure out where and how to get the capital they need.
If you are a small business owner, here a three priority items you need to consider leveraging your assets to navigate the world of credit:
1. Register your business and be up to date with filing your taxes.
In order for your business to receive any grant and or loan consideration from an approved organisation, your business must be registered with the Companies Office of Jamaica, a valid TRN Number and be up to date with all your tax filings. All these documents are critical and needed as part of the KYC (Know your customer) due diligence process.
There are several companies who assist with the registration of businesses. Kalilah from Kalilahrey Media did a video on this a few months ago. Check out her youtube page.
2. Open an investment account for your business.
Yes - Trust me on this. Contact a financial advisor (Victoria Mutual Wealth Management has excellent advisors), you need to take small and consistent steps to build wealth to earn passive income for your business. During the pandemic, I suggested Margin Loans to several of my clients who had investment accounts. A margin loan allows you to borrow against the value of securities you already own. It is an interest-bearing loan that can be used to access funds for investment and non-investment needs. The beauty of this product is that interest rates are typically lower as the loan is secured by securities. In most cases principal is due as a bullet payment upon maturity, so clients are not overburdened with the repayment plan. The turn around process for a margin facility is a fraction of the time required for a commercial loan thus providing you with much needed capital in a short time frame.
3. Keep negotiating your interest rates as your business credit score and position improves.
If you never ask, the answer is always no. Keep abreast with the interest rate trends in the industry. At least once a year ensure all your business loans are reviewed. If you have adhered to all the financial covenants and have a solid re-payment track record, re-negotiate your interest rates as much as possible. You can discuss with your relationship manager the possibilities of doing same. I always recommend putting the formal request in writing and include the current status and good standing of the loan to make the request compelling. If the response from your lender is negative, always ask for the reason so you can adjust what needs to be adjusted if possible.
We are still navigating our new normal and all the twist and turns needed for business continuity. Ensure you are in the best position to leverage your assets to transform your business as necessary to thrive.